Satyam Chairman Admits to $1bn Fraud

In what is being billed as 'India's Enron', the head of IT outsourcing giant Satyam has admitted to inflating the firm's cash and bank balances by 70bn rupees ($1bn) in an effort to forestall a takeover.

Satyam (which ironically means 'truth' in Sanskrit) was formed when B. Ramalinga Raju branched out from his family's construction business to start the software firm. Last year, as part of a strategy to provide research and analytics services to firms globally, his company bought the market research and customer analytics operation of mining equipment manufacturer Caterpillar.

Yesterday, Raju resigned as Satyam Chairman after confessing to the scandal, which had involved him falsifying the company's accounts for several years.

He admitted to faking the firm's revenues and operating margin in Q4 2008. Actual operating margin was 3% ($12.5m), on revenues of $434m, as against the incorrectly reported operating margin of 24% ($133m), on $554m in revenues. Debts were overstated by $100m, and liabilities understated by $253m.

Raju claims that neither the Board nor any of the firm's executives were involved in the deception, nor did he personally benefit from the scam.

He now faces up to 10 years in prison for forging his company's financial results. The firm also faces legal action in the US where investors have filed lawsuits against Satyam and its management for filing fictitious financial figures.

In addition, Indian investors are demanding to know how the firm's auditor PricewaterhouseCoopers (PwC) missed the fraud for up to seven years, when US bank Merrill Lynch apparently became aware of the deception in just ten days. PwC's part in the Satyam affair will now be probed by the Securities and Exchange Board of India, as well as the Indian government's anti-corruption office.

Ram Mynampati, who has taken over as interim CEO, has formed a team of senior leaders to 'steer the company through the crisis'. Mynampati told the firm's 53,000 employees: 'This quarter will be tumultuous for us. Rumours will abound and it would be fair to assume that competition will try to leverage it to their advantage.'

Web site: www.satyam.com .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.